RBI has given good signal: Montek

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Last Updated: Tue, Mar 19, 2013 11:56 hrs

New Delhi, Mar 19 (IBNS) The Reserve Bank of India (RBI) has given a good signal of a turnaround in the interest rate environment and hopefully it would not wait for too long to reinforce it, said Planning Commission deputy chairman Montek Singh Ahluwalia.

He was reacting on the 25 basis points cut in repo rate in mid-quarter review of the monetary policy by the RBI while speaking at an ASSOCHAM event held in New Delhi on Tuesday.

"I am glad that by lowering the repo rate by 25 basis points (bps), RBI has signalled a continuing reduction of the rate and it believes that macro-economics is turning around though many people in the industry feel that it should have been more robust than 25 bps, but the important thing is that RBI is giving a signal that they perceive inflation is beginning to come under control, they are persuaded that fiscal deficit reduction is giving fiscal space and so they are signalling that there will be a turnaround in the interest rate environment," said Ahluwalia.

He was inaugurating the 2nd International Summit on "Infrastructure Finance-Building for Growth" organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

"Obviously how effective all this is going to be depends on how the year moves in the next quarter and that's an advantage that monetary policy has that it can be moderated week-to-week unlike the fiscal policy," said Ahluwalia.

"So, I would hope that RBI would take a good look at what is going on and not necessarily wait for too long to reinforce the signal as it is a good signal which they have given."

Earlier, while releasing an ASSOCHAM-Deloitte study titled "Funding the Infrastructure Investment Gap", Ahluwalia said that the Cabinet Committee on Investment (CCI) is looking at a large number of infrastructure projects stuck due to problems arising from the lack of regulatory clearance of one kind or another.

"To overcome the regulatory clearance problems the government had set up the CCI about two months ago and it is my expectation that within a few more weeks there will be a clear indication that we've actually succeeded in resolving these problems," said Ahluwalia.

Talking about the infrastructural development, Ahluwalia said that it cannot be done through public resources alone as it's the government's stated policy that public resources have to be spent for human resources development.

On the issue of public-private partnership, the Planning Commission's deputy chairman said there has to be a very clear understanding between the government and private sector. "If we want to follow a PPP process, a clarity in how to do and achieve it with a reasonable degree of transparency becomes very crucial."

With regard to the user charges in a PPP arrangement, Ahluwalia said that public must accept that user charges are an essential part for viability of a PPP arrangement as there is an easy tendency to argue that user charges must be reduced.

"It looks like a pro-people step, but we have to recognize that if user charges have been put properly with an appropriate mechanism and in a transparent manner arbitrary demand to cut user charges simply to make the system financially unviable."

"Its important for the public to realise that if you like a system that has delivered good results the user charge arrangement is absolutely crucial otherwise there is no revenue model," added Ahluwalia.

Looking into the financial year 2013-14, there is a need to promote India as a very attractive destination for foreign money, said Ahluwalia while adding that investment bankers, financial people and others need to put across that India's economy is back on a higher growth path.

He said that he is in favour of any financial innovation that will encourage foreigners to buy Rupee denominated bonds.